* Norway averse to taking too much risks with savings
* Critics say it leads to SWF's underperformance
* Political consensus key to decision-making on the fund
* Investment in new assets under consideration
* Graphic: tmsnrt.rs/2tskfub
By Gwladys Fouche
OSLO, Aug 18 (Reuters) - Jobs, taxes and schools will be top of Norwegian voters' minds when they go to the polls on Sept. 11, but it's what to do about the nearly $1-trillion sovereign wealth fund that may be the next parliament's biggest challenge.
The world's largest sovereign wealth fund, pooling Norway's revenues from oil and gas production, has been managed for nearly two decades with a focus on avoiding risk and conflicts of interest.
With prices of crude oil down by more than half in the past three years and returns below target, policymakers and critics agree the fund is due for an overhaul. For Norway, the difficulty is building a political consensus around what it should look like.
"It is more an academic topic than a bread-and-butter issue for voters but ... the coming months are absolutely crucial," said Torstein Tvedt Solberg, an opposition Labour Party parliamentary candidate and its spokesman on the fund.
"There are some big decisions ahead about the way it (the fund) is managed that are coming up," he told Reuters.
Norway's SWF has returned 3.79 percent per year on average since it opened in 1998. With the pot always growing - now at two-and-a-half times GDP - the fact that that's short of the target four percent hasn't been a big problem.
Last year, however, the government had to make its first net withdrawal to supplement a state budget hit by the fall in oil prices and lower state revenues from oil and gas production, which accounted for half of Norway's total exports in 2016. More net withdrawals are expected in the years ahead, economists say.
Norway's returns compare to 6.1 percent over the past 20 years at the world's second-largest wealth fund, the Abu Dhabi Investment Authority, and 4.76 percent at the third-largest, China Investment Corporation, since it began in 2007.
Unlike those funds, Oslo's SWF is managed by a unit of the central bank that must turn to the government to secure a majority in parliament to make strategic changes, no easy feat given that minority governments are common in Norway.
"What differentiates this fund from others is that it is democratically owned," said Marianne Marthinsen, the Labour Party's finance spokeswoman.
"The fund must have legitimacy with the Norwegian people, and parliament must have democratic controls," she said.
Critics say the process of consensus-building among so many disparate interest groups is agonisingly slow and possibly even fiscally irresponsible, however.
"They (Norwegian politicians) do not want to take any risk that will end up in headlines. That is why the fund underperforms," said Sony Kapoor, managing director of the Re-Define think tank and author of several studies on the fund.
The new parliament's first opportunity to make changes will come in the spring of 2018 when the finance ministry presents its next annual white paper to parliament.
The two main issues on the table are whether to make the fund independent of the central bank, as a government-appointed commission recommended in June, and whether to allow the fund into new asset classes, including unlisted shares and unlisted infrastructure projects.
The inclusion of unlisted infrastructure projects, in particular, is supported by the current fund managers.
"The bank's explicit position is that we will get a higher return and a lower risk by investing in infrastructure," CEO Yngve Slyngstad told Reuters in June.
Investing in such projects -- airports, roads, bridges or wind farms -- has been a hot topic in recent months. The opinions of politicians are mixed, however, and not necessarily along party lines.
The current finance minister, Siv Jensen of the populist Progress Party, has twice declined to bring the proposal to parliament during her term. Her shadow counterpart agrees.
"These are complicated investments, though the return possibilities are good," said Labour's Marthinsen, a top contender to replace Jensen if her party wins. "I don't want to rush like some others do."
Those in favour include the Christian Democrats and the Liberals, two small parties who back the minority coalition in power. The Christian Democrats support it partly because it would help increase investments in developing countries, and the pro-green Liberals because it would help investments in renewable projects.
Tom Sanzillo, director of finance at the U.S.-based Institute for Energy Economics and Financial Analysis, said the potential increase in returns is well worth the risk, and expressed frustration about the hesitation.
"They seem to be walking away from a market that is a trillion dollar and that is growing exponentially in the coming years. This is not prudent," said Sanzillo, who wrote a report on renewable energy infrastructure investment and the fund.
There is similar equivocation on the question of taking the fund away from the central bank. Marthinsen worries that doing so would give the fund too much power.
"There would be a danger of a completely different culture, around bonuses, recruitment, growth in the management itself, were it to be outside of the central bank," she said.
One argument in favour of the split is that managing both the SWF and the central bank has become just too much work.
"Both central banking and investment management place greater demands on the board, senior management and the organisation than earlier," said Svein Gjedrem, the head of the commission that looked at the issue and a former central bank governor.
"Moreover, the activities differ in nature, and the scope of the tasks involved is substantial. With two separate entities, the professional competence and the governing bodies can more easily be tailored to the task at hand," Gjedrem said in June.
This spring, parliament allowed the fund to increase the allowed share of stocks to 70 percent from 60 percent. That is still not expected to boost returns above the target 4 percent, however, according to the recommending commission.
Knut Anton Mork, a former chief economist at Handelsbanken who headed the commission but took the rare step of dissenting from its conclusion, said those who wanted to move the fund into riskier territory were playing a dangerous game.
"The fund has become too big and is such a big part of the state's budget. Variations in the fund will have an impact on the state's finances at a time when the revenues from the fund are declining," he said.
He had recommended the share of stocks actually be lowered, to 50 percent.
"The biggest question regarding the fund right now is risk-taking and the fund's share of stocks," he said. "It will have big consequences for the state budget in the years ahead."
Editing by Sonya Hepinstall